Tom Crossley - What would you do with £500? (...in your own words) - JPSM MPSDS Seminar 02.05.2025

What would you do with £500? (...in your own words)

Coauthors: Thomas Crossley (University of Michigan), Peter Levell (Institute for Fiscal Studies, London) and Sofia Sierra Vasquez (University of St. Gallen, Switzerland). 

A longstanding puzzle in macroeconomics is why individuals with similar levels of available liquidity can have very different marginal propensities to consume (MPCs). We use a new approach to better investigate differences in consumer behaviour in response to hypothetical, one-off gains and losses: using open-ended questions and text analysis to understand the motives underlying consumers' decisions. We find little evidence that misunderstanding of the question or other response errors explain the puzzling responses. High-liquidity individuals with high MPCs often cite mental accounting motives. Apparently illiquid individuals report a range of coping mechanisms in response to a loss, including labour supply responses, relying on friends and family and selling possessions. This implies greater effective liquidity than narrow financial measures indicate. The analysis provides an example of the utility of open format survey questions in understanding economic behaviour. 

Thomas (Tom) Crossley is a Research Professor in SRC and Director of the Panel Study for Income Dynamics (PSID). He is also a co-investigator (and former Associate Director) of Understanding Society (The UK Household Longitudinal Study, sister study to the PSID). From 2016 to 2022 he was an ONS Fellow and member of the Office for National Statistics' Economics Experts Working Group (the ONS is the National Statistical Agency in the UK) and he was also for many years an advisor to Statistics Canada. Tom is an elected member of the Conference on Research in Income and Wealth (CRIW) and previously served as an elected Council Member for the International Association for Research in Income and Wealth (IARIW).  His research interests include household behaviour, financial security, and living standards; the design, collection and analysis of survey data; and economic measurement more broadly.